How to invest in Treasury Bills

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

22 October 2023

Peter Mwangi from Murang’a says that he has heard about the good interest rates being paid by the Central Bank of Kenya (CBK)on treasury bills. He says: “A friend of mine told me I can earn 15 per cent in three months. I have some money in a savings account and want to transfer it there. How can I do it?”

First of all, let me clarify: the interest rates quoted by all banks are always per year. Thus, when you hear that the Central Bank is paying 15 per cent, this is for 12 months. In other words, if this is the rate for a three-month investment, you need to divide it by 12 and then multiply the result by three. It comes to 3.75 per cent.

Treasury bill auctions are conducted every week on a Thursday and the results announced immediately – before 5pm. Qualifying bidders must pay for their investments by 2pm the following Monday. To participate in the auction, you must be registered with the Central Bank.

CBK launched a new online registration platform on 31^st July this year. It is called DhowCSD and, though it faced usual teething problems, it is fairly simple to use. It took me about three weeks of trying every couple of days and a visit to the Central Bank (which didn’t help!) to get registered.

To avoid these problems, have soft copies of the following documents at hand before starting the registrations: passport-size photograph, your ID card (both sides one page) and tax PIN certificate. Once you get started, do not stop until you finish the whole process it takes less than five minutes.

There are two types of bids that you can place: competitive (where you indicate the bidding interest rate) or non-competitive (where you are willing to be paid at the average rate of all the accepted competitive bids).

All bids are in multiples of Sh50,000 and the non-competitive ones are only allowed up to a maximum of Sh20 million; if you have more than this, you must place a competitive bid.

Treasury bills are sold at discount and the interest attracts 15pc withholding tax. Thus, if the rate is 14pc, you will be paid 2.975pc at the end of 91 days. So, if you bid to buy Sh100,000 at 14pc, you will pay Sh97,110.95 the to CBK. At the end of the investment period, you will get Sh100,000.